Latest Lehman judgment reassures end users on Close-out Rights

It is undeniable that the legal complexities, and unprecedented facts, of the long running Lehman Brothers saga have generated a wealth of legal principal, most notably through the Waterfall series of litigation.

Administrators will note with concern the decision of the East London Employment Tribunal in Spencer v Lehman Brothers (in administration) and Others, which suggests that administrators can be held to be personally liable for the discrimination of employees of the business in administration.

The much awaited court decision on the status of Financial Support Directions (“FSDs”) and Contribution Notices (“CNs”) * issued by the Pensions Regulator against target companies after the commencement of English insolvency processes in respect of such targets was handed down by the court on Friday 10 December 2010. The reluctant decision of Mr Justice Briggs that FSDs and CNs in these circumstances were not provable debts but ranked as expenses of the insolvency process, taking precedence ahead of unsecured creditors, has caused dismay in the restructuring community.

According to a ruling of the High Court, Financial Support Directions and Contribution Notices issued by the Pensions Regulator once an English insolvency process has commenced rank as expenses of the insolvency process (and therefore take precedence over ordinary creditors). This ruling will cause huge practical difficulties for insolvency practitioners. The decision is subject to appeal.

In a blow to administrators that will surely impact on the timings of any administration, most particularly those involving a large property portfolio, HHJ Purle, sitting in the High Court, has handed down a decision that will have ramifications potentially as serious as those of Re Trident Fashions for administrators in considering how long to remain in office, or indeed whether to accept an appointment at all.

On September 17, 2009 Judge Peck of the United States Bankruptcy Court for the Southern District of New York issued two orders that may significantly impact parties who held, or still currently hold, derivative contracts with Lehman Brothers Special Financing Inc. (LBSF) or any of the other debtors in the Lehman Brothers bankruptcy cases (the Debtors).

As you are undoubtedly aware, the September 15 Chapter 11 bankruptcy filing in New York by Lehman Brothers Holdings, Inc. (LBHI) represents the single largest insolvency proceeding in US history. With assets and liabilities of more than US$639 billion, the LBHI filing dwarfs the previously largest US bankruptcies. The filing comes at a time of significant destabilization in US capital markets and has global ramifications. In an effort to keep our clients abreast of the LBHI situation, we are providing the following general update of significant events in the proceedings: